The Singapore Actuarial Conference explored the various challenges and solutions that actuaries face in a world full of existential risks, while also trying to create a more sustainable future for their companies.
P&C actuaries may believe that ESG regulation reporting is far removed from traditional actuarial work, and that by focusing on their annual business as usual – pricing and reserving – the risk management processes that are in place will adequately ride the waves of the industries’ well-established single year time horizon regulatory requirements.
“However, the ESG movement may not result in the regulatory waves that we’re accustomed to seeing, such as Solvency II and IFRS17. In fact, some people believe that ESG regulation will be more like a tsunami,” said Casualty Actuarial Society Ronald Kozlowski, during his presentation on corporate social responsibility.
“We can expect portfolio impact as green energy replaces carbon-based energy, electric replaces gasoline, cars and new businesses try to rebalance the atmosphere. Now, as these ventures grow, the insurer who anticipates these changes could watch their premiums and their uncertainties grow,” he said.
ESG impacts on reserving could be as simple as operational changes, such as more remote activity, or it could include changing repair costs for electric vehicles or green materials to reconstruct property risks.
“For insurers holding long-term assets, they’re going to have to worry about their asset portfolios. As actuaries, we’re deemed conveyors of fiscal truth, protecting policyholders and the functioning of society. But our professional actions don’t usually have much impact on the pressing problems of our time, like social and economic inequities and climate change.
However, understanding and embracing ESG is an opportunity for us and where the insurance industry can do its part for the betterment of humanity,” he said.
Now, with an understanding of ESG, actuaries and insurers can project what the future will look like in 30 years and, through sound traditional transition planning, ensure that employers and customers are prepared to meet this new world.
Sustainability in development
“Actuaries will be first and foremost responsible or will have the largest impact in terms of sustainable development of our industry. And once you have the right professionals, what else is going to impact our industry,” said Munich Re managing director and head of Southeast Asia, life and health Akash Gupta on a panel on sustainable development in insurance.
“I would say the first big change that is happening is the development of interest rates. When interest rates rise, they make our industry a bit more sustainable. And for the reinsurance industry in particular, the geopolitical environment is also important, as it plays a role in how risk is perceived, priced and undertaken.”
The lessons the industry has learned from the geopolitical and pandemic upheavals over the past couple of years would also drive a more sustainable development of the reinsurance business, he said.
From a more local perspective, he believes that businesses in Singapore will be subject to a lot of tailwinds in terms of taking advantage of what has been happening in the region. “I’ve spoken to many individuals recently who said they used to work in Hong Kong but they are now moving to Singapore. Roles that were previously based in Hong Kong are now based in Singapore. So, the geopolitical environment has some benefits for Singapore, combined with the fact that the way the pandemic was managed in Singapore was better than a lot of other places. We are able to open up faster to be able to have conferences like these. We are able to attract talent, and this will also help the sustainable development of insurance industry.”
Sustainability in healthcare
In terms of the medical industry, the greatest challenge behind sustainability is pricing and rising medical costs and all the impacts on the $1.8tn protection gap that it brings. For health insurers, it is not as easy as lowering prices. There are too many factors to consider in pricing, the greatest of which is the healthcare system.
The underlying healthcare system is one of the major drivers of product design and risk management for medical insurers, said Swiss Re head of medical reinsurance Asia Jesse Song. “We all know that the various markets in Asia are at different stages of healthcare system improvements.”
Although the typical value chain for medical insurance management is the same, in that it contains the typical processes of product development, pricing, underwriting and medical operations, the level of sophistication in different markets will vary, which affects the overall cost of care.
She highlighted two of the factors that determine pricing: The utilisation pattern and the duration effect.
The utilisation pattern refers to the rate and the site at which care is accessed.
“You probably have been watching closely this utilisation pattern during and post-COVID to anticipate the pattern change, such as the delay in elective procedures, and also the pent up demands afterwards,” she said.
“The site of care is also very important. It’s because the cost of care differs significantly between private hospitals versus public hospitals. And there are people who travel across country or overseas to seek care. For example, Indonesians travel to Singapore to seek care. That cost will be significantly different from the treatment back home in Indonesia. And same thing applies for mainland China residents who travel to Hong Kong to seek care.”
Achieving true sustainability depends on actuaries’ ability to monitor and take advantage of these patterns while also factoring in the level of sophistication the healthcare system has. She pointed out that some insurers are focusing on streamlining distribution and transactions, while others are paying more attention to location management and pricing, and others are taking a more holistic approach to manage the overall medical operation process.
Climate change and emerging risks
From the perspective of a life insurer, climate change brings about new health risks linked to rising temperatures, from vector-borne diseases such as malaria and dengue, said AIA regional director of actuarial and finance Anjali Kuperan during a panel discussion.
“In colder temperatures you get more deaths related to influenza and also a lower access to healthcare. In very snowy environments, it can be impossible to get anywhere. So, access to healthcare, particularly emergency healthcare, is one of the impacts that we’ve seen as a result of climate change,” she said.
Beyond the obvious risks such as climate change, cyber and inflation, social and demographic changes will also have an impact on how insurers manage their risks. For example, she noted that the mix of people in Singapore is now very different from what it was in the ‘90s and the ‘60s. “We have a lot of data from those time periods. Can we still use it to model for our current exposures? Would it still be correct?”
Speaking at the same panel, Aon senior director of analytics Sunil Frank also said that with increased urbanisation, there was also more exposure at multiple levels all along the coasts, which is compounded with the rising levels.
“As settlements change to avoid some of these patterns, it also leads to more building vulnerability or them being built in areas such as floodplains. This has some inherent risk from a climate change perspective,” he said.
The Singapore Actuarial Conference 2022 was organised by the Singapore Actuarial Society. A